Raymond James STILL Cannot Afford To Buy Out The Auction Rate Securities It Sold

John Carney

Aug. 3, 2009, 9:02 AM

While much of the financial sector went through a near death experience in the last 12 months, Raymond James managed to avoid the dire straits. Based in St. Petersberg, Florida, the brokerage emerged from the panic of 2008 relatively unscathed. But all along it has had its detractors, especially among short sellers.

Founded in 1962 and known for its attention to individual retail customers, over the years Raymond James has grown in into a diversified investment bank worth billions. $3.8 billion. And it not only avoided the crippling real estate losses that burned so many bankers, it way actually able to raise its dividend by 10 percent. On top of all that, the Super Bowl was hosted in Ray Jay stadium this year.

But in her column yesterday, Gretchen Morgenson tore into the brokerage. Ray Jay sold some $800 million of "auction rate securities" to customers. But when the auction rate securities market froze amid the Wall Street meltdown, most firms wound up agreeing to buy the ARSs from their customers. Raymond James declined to make investors whole, in part because its capital position is just too fragile to repurchase the ARS.

Morgenson pointed out that Raymond James decision to raise its corporate dividend by 10 percent enriched CEO Tom James, its largest shareholder. Likewise, the marketing decision to spend $6.3 million for naming rights on Ray Jay stadium while letting actual customers hang in the wind seems very questionable.

From Morgenson:

The problem for Raymond James is that redeeming the $800 million in auction-rate securities would be tough. That figure is equal to 4.4 percent of the company's total assets and 42 percent of its shareholder equity, according to the March 31 quarterly filing.

In that filing with regulators — its most recent — the company said that if it were to "consider resolving pending claims, inquiries or investigations by offering to repurchase all or some portion of these ARS from certain clients, it would have to have sufficient regulatory capital and cash or borrowing power to do so, and at present it does not have such capacity." The filing added that if it had to buy back securities at 100 cents on the dollar, the potential loss "could adversely affect the results of operations."